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What is Income Protection Insurance?

Income protection insurance is a policy that protects you against loss of income due to unemployment, illness or accident. It could provide you with a tax-free income and could continue to pay out until you are able to return back to work or retire.

Bills do not stop just because you are ill and this is what critical illness cover is for.

If you could not work, could your family still afford to pay your rent/mortgage?

Could they afford to pay the gas, electricity, internet, phone bills?
If the answer is no, then you should really consider income protection. According to The Independent, approximately 25% of adults have no savings at all.
Living month to month is fine if you are in full-time employment and earn enough to cover all your outgoings. But what if illness or injury suddenly strikes and your income is lower or gone altogether?
We cannot know what life holds in store for us but income protection insurance is a way to ensure that you still have money coming in.

The Difference Between Income Protection and Critical Illness Cover

Critical illness will pay out if you are diagnosed with a specified life changing illness. However, there are strict definitions which must be met and it only covers very serious illnesses that are either life threatening or are likely to affect your health and well-being for the remainder of your life.

Income Protection will pay out of much less serious illnesses that critical illness would not. A broken leg for example is not life threatening so therefore would not be covered under Critical Illness, however it would under Income Protection Cover if it left you unable to work.

Income Protection will consider your occupation also. Another example could be someone who does manual work, who suffers a back injury. This will severely compromise that person’s ability to do their chosen profession. However, if a person does a desk job, where they are sat down all day, this person would much more likely to able to return to work with a bad back.

What considerations are there with Income Protection?

You should consider your sick pay entitlement with your employer. The reason for this is that with income protection you can chose a deferred period before you can claim.

If your employer would pay you in full for 6 months of being off sick, then you could choose a deferred period of 6 months which would greatly reduce your premiums.

You can have no deferred period at all meaning you could claim from the day you went on the sick, but the premiums would be much higher.

Income Protection will not cover your entire income. Usually up to about 60%.

What affects the cost of an Income Protection Policy?


As mentioned above, the length of deferred period you choose is a big factor in the cost.

Other key considerations would be your health and lifestyle, occupation and how much you earn.

Finally, how long you would like to be able to claim. You could want protection for 2 years from when you start to claim, 5 years, or even right up until retirement.